Examining The Markets

During this year's debate over the nation's farm bill, some critical changes affecting livestock marketing were considered. The debate was highlighted by the Johnson amendment, which would have controlled how and when packers could own livestock. While there was intense and divisive arguments over the consequences of this amendment, nearly everyone predicted profound long-term impacts of such legislation.

Clint Peck Senior Editor | Oct 01, 2002

During this year's debate over the nation's farm bill, some critical changes affecting livestock marketing were considered. The debate was highlighted by the Johnson amendment, which would have controlled how and when packers could own livestock. While there was intense and divisive arguments over the consequences of this amendment, nearly everyone predicted profound long-term impacts of such legislation.

In the end, and with what many considered with relief as a “punt” and others considered a cop-out, the House Agriculture Committee promised to conduct a “sustained and comprehensive examination of our nation's livestock markets and consideration of potential legislative solutions.”

Now, the committee is gearing up to do just that — hold hearings on the current state of livestock markets. Chairman Larry Combest (R-TX) is asking individuals, businesses and organizations to provide his committee detailed information on the structure, health and fairness of the nation's livestock marketing system.

Combest wants macroeconomic answers to specific questions that underline industry problems. But the issues raised might also serve as a self-examination of management and marketing policies of individual feeding and ranching operations.

Over the next few months, the debate will inevitably involve the major livestock organizations and lobbying groups. The issues are complex, interactive and will affect everyone differently. Do yourself and the industry a favor: Take the time to analyze the issues and respond to whatever degree you feel appropriate, and forward them to the group you feel best represents your interests.

Characterize the strengths and weaknesses that exist in the current marketing system for livestock. Outline the nature and scope of the problems you observe. Finally, describe an appropriate governmental role in maintaining a viable livestock marketing system.

The Grain Inspection, Packers & Stockyards Administration's (GIPSA) definition of “captive supply” differs from many in the livestock and meatpacking industry. Why? Given that GIPSA's definition differs from many in the regulated industries, should GIPSA modify its definition? Please define the term captive supply.

Should captive supplies be reduced to 50%, 25%, 0% or some other number? What criteria should a packer use to reduce captive supplies? Which current feeders will be eliminated from the captive supply chain? Who will make this decision? How will we measure the success of limiting or eliminating captive supplies?

Are you familiar with studies that have been conducted to determine what the current price of fed cattle would be if there were no captive supplies today? Will eliminating captive supplies put beef at a long-term disadvantage to pork and poultry in the development of new branded convenience products?

In lieu of current alliance systems, what type of production and marketing system will provide a quality and consistent product needed for branded meat products?

Do contracts, alliances or other kinds of marketing agreements improve or harm marketing alternatives for all sizes of producers? Since some lenders require price protection (hedges, forward contracts, etc.) for cattle production loans, what alternatives will replace forward contracts?

Should independent, producer-owned plants, feedlots, marketing cooperatives and other livestock businesses — currently and in the future — be subject to the same level and kinds of legal and regulatory restrictions as more traditional livestock operations?

What role do purchasing arrangements by major retailers have on packer pricing, captive supplies and other marketing and production arrangements? What is the current farm-to-retail price spread? How has this changed over time? What role have captive supplies had in altering the spread? Will a further regulation of captive supplies or other governmental intervention in livestock markets impact the spread? How?

Numerous policy proposals have been discussed in Congress recently — the ban on packer ownership, for example. Meanwhile, a measure that would require packers to purchase 25% of their daily slaughter from the cash market is being discussed now. Highlight the economic effects of each of these on all of the participants in the livestock production sector in both the near and long term.

Mandatory price reporting (MPR) was advocated as necessary to improve market transparency and price discovery. Implicit in the arguments of individuals advocating mpr was the idea that this improvement would lead to higher prices for producers. What has been the effect of MPR on producer prices?

How does one reconcile the assertion that packers manipulate the market with the fact that prices move both up and down?

What structural and/or economic transformations have occurred in the livestock, poultry, meat and retail industries in the past decade? To what extent have these transformations been caused or influenced by consumer demand or purchasing habits?

Has the merger and acquisition activity in these sectors been greater than similar activities in other segments of the U.S. economy, such as other food or consumer product manufacturers or retailers? What factors have motivated mergers and acquisitions within these sectors?

What factors have motivated vertical integration within these sectors? Are all vertical integration models the same? If not, describe various models and their benefits or detriments for consumers, retailers, manufacturers and producers.

During the past 10 years, which meat packers have increased packing capacity and/or built new packing facilities — those who own or contract for some or all of their livestock, or those who do not?

Does the business structure of the current U.S. retail, meat and poultry processing, and livestock production sectors optimize productivity, quality and profitability for each sector? Why or why not?

Based on a competitive analysis of these sectors, which are better positioned for business success or failure? Why?

Would an analysis of farm, processing and retail margins for meat products over the past decade show that any one of these sectors has greater power or profitability than any other? Why?

How do these production/processing/retailing sectors compare with similar chains in other consumer product manufacturing industries, such as the automotive, dairy or pharmaceutical industries? What lessons can be learned?

What are the drivers of and barriers to profitability in today's livestock production, meat and poultry processing, and retail industries?

What effect do vertical integration, contracting and other supply-management strategies in the meat and poultry production/processing/retailing chain have on consumers? Retailers? Processors? Producers?

Does the current Packers and Stockyards Act need to be modernized to respond to changing conditions in the livestock sector? If yes, outline the specific changes and/or additions to current law and resources that would be necessary to accomplish this goal.

Formal answers to each listed question may be sent to [email protected][1]. house.gov[2]. Be sure to include the original question with your answers.